Artic Oil future (Bloomberg)

Lundin Petroleum AB (LUPE), the Swedish explorer focused onNorway, said there won’t be any new oil output in the ice-filled waters of the Arctic for at least 15 years because of technical and logistical challenges.

“I don’t think we’ll see any oil production in the Arctic any time soon -- probably not this decade and not the next,” Chairman Ian Lundin said in a Feb. 20 interview in Stockholm. “The commercial challenges are too big.”

The Arctic holds 30 percent of the world’s undiscovered natural gas reserves and 13 percent of its undiscovered oil, according to U.S. Geological Survey estimates. Still, exploration of the Arctic ocean floor, where 84 percent of these resources are thought to be trapped, has suffered setbacks in recent years.

Royal Dutch Shell Plc. (RDSA), Europe’s biggest oil company, in January again halted drilling plans off Alaska after a court ruled the area had been illegally opened to exploration. That followed a previous postponement after a series of technical mishaps in 2012, including the stranding of a rig.

Off the coast of Greenland, drilling has yet to resume after Cairn Energy Plc (CNE) spent $1 billion on exploration without making commercial finds in iceberg-ridden waters, while Russia’s Shtokman gas project, 600 kilometers (370 miles) from shore in the Barents Sea, has been stalled for years.

Lower Priority

As companies including Shell and Norway’s state-controlled Statoil ASA (STL) cut planned investments amid rising costs across the industry, expensive Arctic projects could get a lower priority.

“It may take a while to develop the right technology,” Lundin’s chairman said. “Investments are very, very high so it still has to be commercially justified.”

Another factor undermining the appeal of expensive exploration projects is the outlook for crude prices. Brent oil for delivery in 2016 is trading at about $97.45 a barrel, down 11 percent from the current spot price of $110.07 for the global benchmark, according to data compiled by Bloomberg from the Ice Futures Europe Exchange.

An exception to Arctic challenges is the southern part of Norway’sBarents Sea, Lundin said. While inside the Arctic circle, it benefits from a less-harsh climate and shallower and ice-free waters, and may hold 8 billion barrels of oil equivalent in undiscovered resources, more than 40 percent of the country’s total.

Dwindling Reserves

To compensate for dwindling reserves in aging North Sea fields, Norway is pushing into the Barents, which holds 54 of the 61 blocks the government has proposed issuing in its next licensing round. More than half will be in a newly opened area previously disputed with Russia.

“In the Barents Sea we’ll probably see production much sooner because there’s no technological gap,” he said. “It’s now just a matter of having the reserve base that you’re required to have to justify the investment.”

Lundin fell as much as 0.8 percent and traded 0.2 percent lower at127.3 kronor as of 10:40 a.m. in Stockholm. That curbs the stock’s gain to 1.5 percent so far this year and gives Lundin a market value of 40.5 billion kronor ($6.2 billion.)

Some oil production has already started in Arctic waters. BP Plc (BP/)’s Prudhoe Bay field in Alaska has been producing since the 1970s, while OAO Gazprom in December became the first Russian company to extract oil from the Arctic seabed at the Prirazlomnoye field in the Pechora Sea.

Contrasting Outlooks

Eni SpA (ENI) will become the first company to produce oil in Norway’s Barents Sea when its Goliat field starts in the third quarter this year, even though the Norwegian Petroleum Directoratehas said it expects delays. Statoil’s Snohvit gas field, which began output in 2007, is the only producing field in the Norwegian Barents Sea to date.

Lundin discovered as much as 145 million barrels of oil at the Gohta prospect in the Barents Sea last year. That has helped revive optimism among explorers after Statoil postponed an investment decision on its nearby Johan Castberg project because of higher costs, taxes and uncertainty about resource estimates of as much as 600 million barrels of oil.

Gohta was Norway’s first oil discovery in Permian layers with sufficient flow, and opened up a new exploration model for the area with as many as 10 new drilling targets, the Swedish explorer has said. Lundin is planning an appraisal well at Gohta in the second quarter and will drill the nearby Alta prospect in the third.

Lundin’s optimism contrasts with Statoil, which has found oil at just one of four exploration wells designed to boost crude resources for its Castberg project and make it more profitable. Still, current resources are sufficient to be developed and Gohta could even be coupled with Castberg, Lundin has said.

“There are other discoveries in the same area” as Gohta, the chairman said. “After we go through the appraisal phase we’ll hopefully be in a position where we can just press the button for development.”

To contact the reporters on this story: Niklas Magnusson inStockholm at nmagnusson1@bloomberg.net; Mikael Holter in Oslo at mholter2@bloomberg.net

To contact the editor responsible for this story: Jonas Bergman atjbergman@bloomberg.net

Sweden "Vision Zero" Plan (the economist)

LAST year 264 people died in road crashes in Sweden, a record low. Although the number of cars in circulation and the number of miles driven have both doubled since 1970, the number of road deaths has fallen by four-fifths during the same period. With only three of every 100,000 Swedes dying on the roads each year, compared with 5.5 per 100,000 across the European Union, 11.4 in America and 40 in the Dominican Republic, which has the world's deadliest traffic, Sweden’s roads have become the world’s safest. Other places such as New York City are now trying to copy its success. How has Sweden done it?

Since reaching a peak in road deaths in the 1970s, rich countries have become much better at reducing the number of traffic accidents. (Poor countries, by contrast, have seen an increasing death toll, as car sales have accelerated.) In 1997 the Swedish parliament wrote into law a "Vision Zero" plan, promising to eliminate road fatalities and injuries altogether. "We simply do not accept any deaths or injuries on our roads," says Hans Berg of the national transport agency. Swedes believe—and are now proving—that they can have mobility and safety at the same time.

Planning has played the biggest part in reducing accidents. Roads in Sweden are built with safety prioritised over speed or convenience. Low urban speed-limits, pedestrian zones and barriers that separate cars from bikes and oncoming traffic have helped. Building 1,500 kilometres (900 miles) of "2+1" roads—where each lane of traffic takes turns to use a middle lane for overtaking—is reckoned to have saved around 145 lives over the first decade of Vision Zero. And 12,600 safer crossings, including pedestrian bridges and zebra-stripes flanked by flashing lights and protected with speed-bumps, are estimated to have halved the number of pedestrian deaths over the past five years. Strict policing has also helped: now less than 0.25% of drivers tested are over the alcohol limit. Road deaths of children under seven have plummeted—in 2012 only one was killed, compared with 58 in 1970.

Will the Swedes ever hit their "zero" target? Road-safety campaigners are confident that it is possible. With deaths reduced by half since 2000, they are well on their way. The next step would be to reduce human error even further, for instance through cars that warn against drink-driving via built-in breathalysers. Faster implementation of new safety systems, such as warning alerts for speeding or unbuckled seatbelts, would also help. Eventually, cars may do away with drivers altogether. This may not be as far off as it sounds: Volvo, a car manufacturer, will run a pilot programme of driverless cars in Gothenburg in 2017, in partnership with the transport ministry. Without erratic drivers, cars may finally become the safest form of transport.

US field production of Crude Oil (2013)

US field production of Crude Oil (2013)

U.S. DEPENDENCE ON FOREIGN OIL IS AT A 20-YEARS LOW AND DECLINING.

U.S. DEPENDENCE ON FOREIGN OIL IS AT A 20-YEARS LOW AND DECLINING.

QA Session with David Collyer and Gordon Hoeckstra on BC Energy Projects: Enbridge's controversial $6.5-billion Northern Gateway and Kinder Morgan's $5.4-billion Trans Mountain pipeline expansion.

Energy has become, increasingly, a major focus of the British Columbia economy with billions of dollars of proposed projects. Those include Enbridge's controversial $6.5-billion Northern Gateway and Kinder Morgan's $5.4-billion Trans Mountain pipeline expansion. There are also billions in liquefied natural gas projects being considered by global energy heavyweights such as Exxon Mobil, Shell and the BG Group. The Vancouver Sun talked with Canadian Association of Petroleum Producers president David Collyer for a year-end take on these major projects.

Q Northern Gateway has recently received approval from the federal review panel with 209 conditions (which are tough but "doable," says the company). However, there is staunch First Nations opposition in B.C., supported by environmental groups, who are saying they will launch legal action. Will this pipeline get built?

A I don't think one should conclude by any means that all First Nations are opposed to that particular project or opposed to oil pipelines. But there is no question there are some tough issues to be resolved. I think the (Doug) Eyford report (Prime Minister Stephen Harper's special envoy on First Nations) that was issued a couple of weeks ago is a fairly balanced and pragmatic road map to try to resolve those issues. There's a trust relationship building piece of this, and there's a need obviously to find some way to reconcile issues around claims - although not necessarily solving them in the context of a project. And then you need to try to figure out a way to figure the economic-benefits dimension of it. It's not easy.

Q First Nations claims and consultation concerns around industrial projects seems to be fought out in the assessment process. Are environmental reviews the best place to be dealing with these issues?

A The short answer is no, with some qualifiers. I think we are burdening the regulatory process with more than it can actually deal with. And we are doing it in a process that is almost, by definition, adversarial and doesn't provide much room for finding common ground. I think we're increasingly living in a world where the broader social licence dimensions of energy and the environment need to be dealt with outside the specifics of a project or the specifics of a regulatory process.

Q Is there any work underway to try to address that?

A Again, I think the Doug Eyford report was quite a thoughtful examination of this, and he certainly provided strong encouragement for governments to take the lead in creating that table, but also was pretty clear that First Nations and industry needed to be constructive participants in it. (Eyford recommended creating a Crown-First Nations corporate "tripartite energy working group" as a forum for open dialogue on energy projects).

Q If a panel says yes, and the federal government says yes, but at least among a significant portion of the public, they are saying no to a project, how does it gain social licence?

A We've got a challenge in this country - whether it's an oil and gas project or a wind farm, or natural gas-fired power plant - as most people want the benefits of industrial development, including energy development. But very few people want to be directly impacted by it. And, one of the challenges that governments in Canada have - it's not unique to this counter - is this question of how do you balance the broader public interest with the local interest. I think all that can be done in that context is to try to make sure all reasonable steps are taken to deal with the issues and concerns people have raised from a technical, environmental or safety standpoint.

Q The B.C. government has said that, except for partly meeting the first condition on passing the review, Northern Gateway doesn't pass the other four conditions. (Those are world leading sea and spill response systems, aboriginal benefits and economic benefit for B.C.) And B.C. Environment Minister Mary Polak said she can't see how they can be achieved in the 180-day time frame Ottawa has to make a decision or even within one year.
Can this project be built without B.C. government support? A I guess in theory it can. From a practical or pragmatic stand point, I think, we as industry, and the pipeline proponents, and the Alberta government, have all recognized the need to address the five conditions. We think they're quite reasonable in terms of the types of things they expect. Obviously, the devil is in the details.

Q It's been suggested the fifth condition could be met through a fee or tax on oil that goes through B.C. Is that an idea industry is willing to consider, or is it a non-starter?

A I think it's premature to be specific about what we would consider and what we wouldn't.

Q Another major proposed project just filed its formal application: Kinder Morgan's $5.4-billion Trans Mountain expansion. There is also significant opposition to this project - but it does follow nearly three-quarters of existing route. Will this project be easier to build?

A The First Nations' opposition to the Trans Mountain Kinder Morgan pipeline is not as strong as it is in northern B.C. Conversely, it's the Lower Mainland, and there will be a different set of issues that arise from increased tanker traffic from the Port of Vancouver. I don't think any of these projects are going to be easy, or simple or straightforward.

Q How important is west coast access for bitumen, given there are proposals to get oil to the east coast of Canada, and Canadian oil can get to the U.S. gulf coast where it can be exported as refined products?

A Our view is we need west coast oil market access. Given our view of the production growth potential (in Canada), we think it's really important to be attached to the market that has the greatest potential demand growth - and that's Asia.

Q There is much interest in LNG in B.C. from oil and gas heavyweights: As many as a dozen facility proposals, and maybe half a dozen pipelines. But there is much competition from existing exporters such as Australia, and emerging participants such as the U.S. and East Africa. Will any company make a final investment decision in 2014?

A I am optimistic we will. The market is there. The supply is there. The question is whether we can bring all the pieces together to hit those market windows. Frankly, part of that is making sure we are as competitive as possible and we don't miss these market windows because we're unduly focused on carving up the pie before we create the opportunity.

Q Are you, in part, talking about the B.C. government's LNG tax decision that's been pushed off to 2014?

A I think there's a package of issues that need to be dealt with on competitiveness. the upstream (drilling) dimension, how carbon or carbon tax is going to be handled, electricity generation. The LNG tax is obviously one of those.

Q The public generally appears to be warmer to LNG development than oil pipelines. That said, there are challenges tied to the broader footprint, including greenhouse gases, pollution emissions and fracking. Can these concerns be addressed?

A We need to find a way to overcome them, frankly. We need a conversation at two levels. We obviously need to work on the ground with communities to mitigate concerns that arise from increased activity (fracking and water use) and investment. And we need to find a way to have constructive conversation about some of these broader (energy mix and carbon) issues that can't be resolved, and shouldn't be expected to be resolved, in the context of individual projects.

Happy new year 2014 to you all, dear readers!
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Feliz año 2014 para todos los lectores!

OPEC Pumps Least Crude in More Than 2 Years as Saudi Cuts - Lanahn Nguyen

OPEC reduced crude production in November to the lowest level in more than two years as output dropped below the organization’s 30 million barrel-a-day ceiling for a third month.

The Organization of Petroleum Exporting Countries pumped 29.63 million barrels last month compared with 29.83 million in October, OPEC said in its monthly oil market report today, citing data from secondary sources. That’s the lowest since May 2011. The group decided to maintain its output limit of 30 million at a meeting in Vienna last week because members were “all satisfied,” Ali al-Naimi, Saudi Arabia’s oil minister, told reporters on Dec. 4.

“In taking this decision, member countries reconfirmed their readiness to promptly respond to unforeseen developments that could have an adverse impact on an orderly and balanced oil market,” OPEC said in today’s report.

Analysts at banks including BNP Paribas SA, Citigroup Inc. and Deutsche Bank AG predict that some members of OPEC, notably Saudi Arabia, will probably need to reduce output in 2014 to prevent a global glut. The U.S. is producing the most oil in a quarter-century, while Iraq, Libya and Iran have said they plan to increase exports in the next several months.

Libyan Ports

Today’s OPEC report was published before the head of Libya’s Petroleum Facilities Guard, Brigadier Idris Bukhamada, said that three oil ports in eastern Libya will reopen on Dec. 15. The Al Magharba tribe, which held a meeting today, forced former PFG leaders to lift their blockade, Bukhamada said by phone from Ajdabiya. The ports, including Es Sider, the largest, had been closed since late July.

Output from Saudi Arabia, OPEC’s biggest producer, fell to a five-month low of 9.63 million barrels a day last month from 9.71 million in October, according to OPEC’s monthly report. Production also dropped in Libya, Nigeria, the United Arab Emirates, Algeria, and Kuwait, while supplies climbed in Iraq, Iran, and Angola.

“Downside risks to the oil price may require OPEC to cut production to defend oil prices,”Michael Lewis, head of commodities research at Deutsche Bank in London, said in an e-mailed report today. “Given our upbeat outlook for world growth we would view any attempt by OPEC to defend the oil price as likely to be successful.”

Brent crude for delivery in January fell 17 cents to $109.22 a barrel at 1:49 p.m. in London on the ICE Futures Europe exchange, after rising as much as $1.06 earlier today, before the news on Libyan ports emerged. The North Sea grade, which is the benchmark for more than half the world’s oil, has dropped 1.7 percent in 2013.

Spread Narrows

OPEC has pumped below its 30 million barrel-a-day target since September, reports for this month and last showed.

The spread between U.S. West Texas Intermediate and Brent crudes will narrow in the coming year, according to the group. “As additional pipeline capacity to the U.S. Gulf coast becomes available,” a glut will ease at WTI’s delivery point in Cushing, Oklahoma, OPEC said. The gap traded at about $10.81 a barrel today after narrowing from $19.01 on Nov. 27, the widest on a closing basis in eight months.

World oil consumption is expected to gain by 1 million barrels a day next year to 90.84 million barrels, according to the report, little changed from last month’s estimate. Demand for OPEC’s crude is forecast to drop to 29.6 million barrels a day, or a decline of 300,000 barrels from this year.

Production from nations outside of OPEC will increase 1.2 million barrels a day next year to average 55.32 million barrels a day, with gains from the U.S., Canada and Russia, OPEC said. That’s little changed from last month’s estimate.

The International Energy Agency, the Paris-based adviser to oil-consuming nations, will release its monthly report tomorrow.

OPEC’s 12 members are Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the U.A.E. and Venezuela.

Fracking puts U.S. first in shale gas production

The United States, followed by Canada, leads the world in producing natural gas from shale formations as the controversial practice of fracking spreads, the U.S. government reports Wednesday.

Shale gas accounted for 39% of all natural gas produced last year in the United States, compared to 15% of that in Canada and less than 1% in China, according to data from the Energy Information Administration, the statistical arm of the Department of Energy.

"There's no commercially-viable shale gas production outside the United States and Canada," although about a dozen other countries have done exploratory testing, says Aloulou Fawzi, an EIA industry economist. He says China's production, as estimated by independent Chinese energy analysts, is quite small in comparison.

The main reason for the recent U.S. boom in natural gas production -- up more than a third since 2005 -- is the cost-effective combination of horizontal drilling and hydraulic fracturing or fracking. This process typically blasts huge quantities of water, mixed with sand and chemicals, underground to break apart rock and allow the natural gas to flow from the shale into the well.

Many environmentalists oppose fracking, because it can use a lot of water in parched areas, create waste water, trigger small earthquakes and contaminate groundwater. They also worry that the low cost of natural gas reduces demand for carbon-free renewable energy sources such as solar and wind.

Natural gas is already cutting into the share of U.S. electricity provided by coal-fired power plants, which has fallen from 53% in 1993 to 42% in 2011. During that period, EIA says natural gas' share nearly doubled -- from 13% to 25% -- and is projected to hit 30% by 2040.

The agency expects U.S. natural gas production will increase 44% between 2011 and 2040, saying almost all this growth will be due to shale gas. Yet It says there are long-term uncertainties about the productivity of shale formations, because many are so large that only limited portions have been widely tested for production.

Fracking has brought economic revival to areas with the largest shale formations, including the Barnett in central Texas, the Eagle Ford in southern Texas, the Bakken in North Dakota and the Marcellus in Pennsylvania and several neighboring states.

Earlier this week, the agency attributed part of the recent U.S. decline in heat-trapping carbon dioxide emissions to the nation's switch from coal to natural gas, which emits about half as much CO2 as coal per unit of electricity.